Today in Commodities: Slaughterhouse Blues

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 |  Includes: BAL, COW, DBA, ERO, FXB, FXC, JJA, MOO, SGG, TLT, UNG, USO
by: Matthew Bradbard

Bulls make money in bull markets and bears make money in bear markets BUT pigs get slaughtered. Most have heard this saying, but are you applying this to your trading? We saw a lower high and lower low in Crude as prices traded lower again today, making it 8 out of the last 9 sessions. Though we have not advised clients to get short, we do expect a trade down to $72/73 in June. If we are correct with our assessment we should see downside in the distillates followed by a pop higher in the weeks to come.

Natural gas is higher by 3.50% as of this post, reaching a two week high. We are suggesting longs with clients, thinking a trade above $5 is imminent. WHY, you ask? A technical bounce, short covering, weather, strength from outside markets, and as a contrarian play because no one else is looking for it.

Prices as of this post are at or just above the 50 day MA in indices; if we get a close above that level we would advise exiting all short futures. We will be hanging onto the ES puts for clients as we think still in the coming weeks we will see downside, but with the futures we view the risk too great. 30-year bonds closed lower today for the fourth consecutive session; aggressive traders can continue to sell rallies.

July sugar poked above the 9 day MA for the first time in three weeks, gaining 5.45% today. We continue to feel an interim bottom was made last week and anticipate a trade back to 18-19 cents in the coming weeks. Clients are advised to be long October 10′ and March 11′ contracts. A rally failed in cotton and we would position to take advantage of further downside. We suggest exiting ALL remaining longs in OJ if we get a 2-4% appreciation as the chart is looking heavy.

Live cattle failed to make a new high again today; we may have some bearish suggestions in the days to come… stay tuned. We advised clients to cut losses on their June lean hog shorts today but to hold onto their August. Clients in June lost approximately $125/per. Agriculture was quiet though corn did trade above the 100 day MA for the first time in 2 1/2 months. Our suggestion would be to buy setbacks as long as the weather stays unfavorable and China is buying.

Silver traded to a fresh 2010 high but we’ve learned in this environment to take profits. There is likely more upside but we advised clients to lighten up and exit some of their positions. They booked a 30% net profit on most of their positions from just last week. Clients who wished to increase their exposure in metals were advised to buy June gold straddles. They bought $1300 calls and $1200 puts, expecting a big move one way or the other in the coming sessions.

The US dollar was the lone positive in forex today. As long as 1.5000 remains as resistance in the Pound we would suggest selling rallies. The Loonie is back at the down sloping trend line and should make a decision on direction tomorrow. We likely will be fading any rally.

Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.